EVA Performance Appraisal,Executive Incentives And Cash Holdings Of Company

With the further development of Central Government-Owned Enterprises?CGOE?reform and the widespread of value management concept,the traditional accounting profit-oriented performance appraisal system has been criticized constantly.It is common for enterprise to manipulate profits and carry out short-term behavior as the traditional performance appraisal system is based on total profit and ROE.Meanwhile,the traditional performance appraisal system only takes the cost of debt capital into account,as a result,the operators of enterprise consider the equity capital as“free lunch”,which leads to the damage of investors wealth.For the above reasons,there is an urgent need to establish an effective performance appraisal method to conduct activities of enterprises.The State Council and SASAC promulgated“The Revision of Interim Measures for Business Performance Appraisals of Persons-in-Charge at Central Government-Owned Enterprises”and was formally implemented in CGOE in January1^st in 2010.Since then,the SASAC require all of CGOE to apply EVA to the evaluation of the annual performance instead of the ROE,also granting 40%weight.Until 2013,the proportion of EVA has accounted for 50%.All of this is to establish awareness of the cost of capital,guide the central enterprises to do business,risk control management,increase investment in science and technology,and improve the quality of development.Based on the background,this paper tests the impact of EVA appraisal on CGOEs cash holdings.Based on the widespread implementation of EVA appraisal,we provide fresh insight by studying the influence of EVA assessment on CGOEs'cash holdings and the value of cash holdings,our sample consists of all CGOEs from 2005 to 2016 for which the required data items are available.At the same time,exploring the relationship between EVA and enterprises performance under the framework of explicit-implicit.According to the empirical research,this paper draws the following conclusions:?1?On the whole,we find that the implementation of EVA evaluation system significantly reduces the level of cash holdings and improves the value of cash;?2?Based on implicit incentive?political promotion?explore the impact of EVA on CGOEs cash holdings,testing the effect of EVA on the behavior of CGOEs with different administrative level.We find that EVA appraisal has a greater influence on CGOEs belong to assisting roles of ministries than belong to leading roles of departments;?3?Based on explicit incentive?compensation incentive?explore the impact of EVA on CGOEs cash holdings,testing the effect of EVA on the behavior of CGOEs with different monetary compensation.We find that EVA appraisal has a greater influence on CGOEs which with an increase in monetary compensation than with a decrease in monetary compensation.Our study not only proves the effect of EVA appraisal implemented by CGOEs,but also enriches related research fields,and further provides empirical evidence for our government to formulate better policies.